More pain in sight for East African Community Currencies

Friday June 24, 2011

The Kenyan and Ugandan shillings are likely to remain under pressure against the dollar next week after falling through a series of record lows that their central banks blamed on currency speculators.

Kenya’s shilling , which has hit a string of record lows in the last two weeks, is likely to remain volatile against the dollar, due to importer demand for the greenback and tight domestic liquidity, traders say.

Commercial banks quoted the shilling at 90.00/30, weaker than last Thursday’s close of 89.90/90.00.

It fell to an all-time low of 91.90 on Wednesday, taking year-to-date losses to more than 13%, but recovered after the central bank said it was going to take action against currency speculation.

“There is no real focus on the shilling following what has happened in the last few weeks. Factors affecting it can change at very short notice,” said Chris Rwengo, head of trading at Standard Chartered Bank. “Liquidity is still squeezed and quoting spreads are still wide.”

Uganda’s shilling will remain under pressure after a week in which it hit two all-time lows before stabilising on the back of central bank intervention.

The unit hit 2,508 to the dollar on Tuesday, prompting the central bank to sell dollars in support of the currency.

Traders in Kampala predicted the currency in a 2,480-2,495 range against the dollar. It has fallen more than 7% against the dollar this year.

Tanzania’s shilling is likely to trade in a narrow range, with expected month-end dollar flows from corporates providing some stability, traders said.

Commercial banks quoted the unit at 1,604/1,609, compared with 1,575/1,580 a week ago. It hit a record low of 1,610 on Wednesday.

Reuters